Beijing's cooling measures for the mainland property market did not keep Guangzhou R&F Properties away from buying the most expensive site in Tianjin on Wednesday.

The biggest developer in Guangzhou bought a commercial and residential site in Xian Shui Gu town in Jin Nan district, a satellite city near Tianjin, in a land auction for 7.05 billion yuan (HK$8.02 billion). That translates into an average land cost of 2,380 yuan per square metre.

The land cost in term of gross floor area is reasonable, said Gao Fei, a manager at Centaline Property Agency in Tianjin. Property prices in the area ranged between 7,000 and 9,000 yuan per sq m and the developer could generate profit from this project. It is the second time the developer has acquired the most expensive site in a mainland city. In December last year, the developer teamed up with Agile Property Holdings and Country Garden to buy the Guangzhou Asian Games City for 25.5 billion yuan. It is the most expensive site in the mainland.

According to a report issued by Citigroup Global Markets yesterday, the land acquisition is unwise, even though the gross margin could reach 30 to 35 per cent.

It was too aggressive and will burden the company's already stretched balance sheet, Citigroup said. It may also damage R&F Properties' undergoing application for an A-share initial public offer and other fund-raising activities currently with the China Securities Regulatory Commission.

Guangzhou R&F Properties had cash on hand of about 8 billion yuan and net gearing of 100 per cent by the end of last year.

The 1.29 million square metre site could yield a commercial and residential project, with a commercial floor area of 478,867 sq m and a residential floor area of 2.48 million sq m. The developer has to provide a secondary and primary school with a total gross floor area of 49,200 sq m.

The site also attracted China Railway and Poly Group in the bidding. China Railway is another aggressive bidder in the land auction. But the site went to R&F Properties at a price 21 per cent higher than the offer price of 5.85 billion yuan.

Shares in Guangzhou R&F Properties rose 1.6 per cent to close at HK$10.18 yesterday.

Bold move

Citigroup says the R&F land acquisition is far too aggressive

R&F Properties' purchase of a site in Xian Shui Gu town in Jin Nan could see the company net a gross margin of: 35%